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SEC To Rule on JOBS Act

Written by: Debra Borchardt07/09/13 - 4:35 PM EDT

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NEW YORK (TheStreet) --The JumpStart Our Businesses Act, or JOBS Act, needs a jumpstart itself. Progress, however, finally seems to be happening as the SEC is scheduled to hold an open meeting on July 10 to vote on the Title 2 portion of the Act. It isn't the crowdfunding portion that many are anxiously awaiting, but it is a sign of action which is giving the crowdfunding crowd a feeling of hope. Title 2 was supposed to be completed 90 days after the enactment of the JOBs Act, but has only gone so far as a set of proposed rules dating back to August of 2012.

This portion of the JOBS Act addresses the approval of advertising for securities sales to accredited investors and requiring the issuers take steps to make sure the investors are indeed accredited. The SEC received 220 comments regarding Title 2, with the majority opposed to the proposal due to fears of fraudulent offerings. The other group was very much in favor of the proposed rules saying it would boost capital formation, but did request specific verification methods to make sure they were satisfying that requirement.

Bob Carbone, co-founder of CrowdBouncer, believes there is internal pressure for the SEC to move forward. "There is an appetite within the SEC to make it a reality," he said. "If they don't accept the rules as proposed, then they will have to start with new rules." Carbone thinks the proposed rules are fairly straightforward and reasonable. "It's long overdue and I think they want it to work," he added.

The question is whether the delay has hurt the JOBS Act. A new study by BDO USA found that investment bankers have lost faith in the Act. Last year, 55% believed it would have a positive impact on IPO activity. Now only 29% have that belief. More than two-thirds (68%) predict the law will never achieve its desired goal of increasing the number of businesses going public. Some 19% believe that crowdfunding would negatively impact the IPO market.

Crowdfunding sites like WeFunder are struggling with how best to protect potential investors. WeFunder CEO and CoFounder Nick Tommarello said his company does due diligence on the companies they feature but wonders whether investors should also conduct their own research. "They shouldn't just take our word for it," said Tommarello. "They should get involved and learn about the companies personally." Many crowdfunders believe that will be the beauty of crowdfunding - i.e. the crowd will "out" bad offerings. Tommarello wonders whether too much protection harms a potential company's chance to raise capital.